The money myth to bust for property investment success

Apart from their remuneration as well as their part in keeping a healthy competition in the property market, part of the discussion is the mortgage broker’s commitment to working in the best interest of investors.

At the moment, around 60 per cent of investors in Australia use mortgage brokers to help them navigate the changing credit environment.

According to finance broker and investor Aaron Christie-David, while it’s business as usual for some investors, other investors are having a hard time expanding their portfolios at this point in the market cycle.

“If an investor says, ‘I want to buy my next two properties,’ we have to go back and map that out – do servicing, do requirements, do lender options – and come back with absolute confidence that we can send them out to the market with a certain borrowing capacity. Then, we engage a buyer's agent as well.”

“We need to actually be able to have that foresight. That takes time out of our business. As brokers, my team and I need to spend about three or four hours to make sure that the numbers are right,” he said.

Aside from doing servicing calculations, brokers also keep themselves up-to-date with lender policy and rates, all while considering the possible implications of any future changes on their client’s strategy and portfolio.

Mr Christie-David explained: “I'll give you one example: At the moment, lenders are asking for all the costs that are associated with your investment property like strata, rates, outgoings, property management, insurances, but they weren’t asking those questions 12 months ago, let alone at the peak of the market in 2015.”

“So, investors are now getting caught short because banks are asking for more transparency around expenses – they’ve dialled down the rental income that they'll take and they’re dialling up the expenses that you’ve got associated with that property. It’s causing a bit of a headache for some investors, mate.”

“One of the reasons why credit isn't as readily available as it once was is because banks have changed the way in which they assess borrowers.”

With the credit environment tightening, Mr Christie-David strongly encouraged investors to pay attention to their personal finances, which will be included in the serviceability assessment should they decide to borrow for another investment property purchase.

Money myth

One of the easiest way to improve borrowing capacity is by getting rid of unproductive debts.

Mr Christie-David, therefore, advised investors to cancel their credit cards as a first step since they generally ‘murder people’s borrowing capacity’, according to Mr Christie-David.

The belief that credit cards are needed to get a credit rating is mostly perpetuated by banks, and getting a finance advice from banks is generally like getting ‘dietary advice from Coca-Cola’.

He said: “It’s flawed, it's got an agenda. Why don’t you go to someone working in your best interest? I’ll kind of beat our chests a little bit as mortgage brokers when I say, ‘We're acting for you and we will help you achieve your goals.’”

“It’s called skin in the game – if our clients do well, naturally, we will do well, too. That’s what a good partnership really is.”

Even if the investor could manage to clear their personal debt each month, banks usually take credit cards as a liability because it can be maxed out anytime.

The finance broker’s advice: Cut them up. If you really need a credit card, just stick to one.

“Live within your means, save up enough money, have some funds in your accounts for a rainy day. These are core money principles,” Mr Christie-David highlighted.

‘Deleveraging’

Mr Christie-David also encouraged investors to reassess their budget and make sure that they are following it strictly.

“In our household, we had a fairly decent car and it cost us about $800 a month. We got to last year and said, ‘What do we need it for?’ I'd rather buy more properties that are income-producing assets rather than a car that’s a depreciating liability, which is costing me and taking away my borrowing capacity.”

“We sold it and bought a car with cash. That $800 a month is now money in our back pocket,” according to him.

At the end of the day, the goals is to present yourself as a better borrower to as many banks as possible by getting rid of all unproductive debts and depreciating liabilities.

He encouraged investors to engage property professionals, where appropriate, in order to make the best decisions throughout their investment journey.

“Your buyer’s agent, your insurance broker, your accountant, your financial planner, we’ve all got skin in the game. We’re kind of rising the tide, and like how iron sharpens iron, you want a good team around you as well,” the finance broker concluded.

Tune in to Aaron Christie-David's episode on The Smart Property Investment Show to know more about the secrets to navigating today's property market.